Consumers appeared reluctant to spend in July, a survey of the Australian services industry suggests, as sales numbers plummeted despite the fact many taxpayers started to receive refunds.
The Ai Group’s Performance of Services Index released on Monday recorded a fall of 8.3 points to 43.9 – tumbling below the 50-point mark separating expansion and contraction in activity – in its largest monthly drop in a year.
“The July turndown in the large services sector is a sharp reminder of the fragility of the domestic economy,” Ai Group chief executive Innes Willox said.
“With income growth subdued and both consumer and business confidence appearing to weaken, the risks of a broader and longer slowdown are clearly accumulating.”
The PSI, compiled from responses of about 200 companies, suggested the retail sector contracted for the eighth month in a row in July.
“Sales, new orders and employment were weak” for retail businesses, the Ai Group’s report said.
“End-of-financial-year sales that carried over into July did not boost retail spending.”
The PSI noted expansion in the health, education and community services sector as well as the hospitality sector during the month but also a sharp contraction in the arts and recreational services segment.
“Across the (services) sector, sales, employment and new orders all contracted in the month notwithstanding that the benefits of personal income tax cuts and (interest rate) reductions have begun to flow through to households and businesses,” Mr Willox said.
Workers earning between $48,000 and $90,000 a year receive a $1,080 refund after they lodge their tax return.
The Reserve Bank of Australia cut the cash rate on June 4 and again on July 2 to reach a record low 1.0 per cent.
“Service businesses in particular will be hoping that, as the flow of stimulus from tax cuts and interest rates deepens, sales will begin to pick up,” Mr Willox said.